Campaign Spending Now Open for Business

As American companies and unions mobilize to organize Political Action Committees (PACs) with an eye to the upcoming mid-term elections, it is worth taking a step back to ask: Does it pay to donate to political candidates? Such a question might seem touchingly naïve, but in reality, the empirical evidence on this issue is much more mixed than one might think.

That more PACs will be organized is a certainty: the Supreme Court assured as much with its January 2010 ruling on the case of Citizens United vs. the Federal Election Commission. For anyone who failed to follow the story last winter, Citizens United, a non-profit corporation, wanted to broadcast a negative documentary about Hillary Clinton during the 2008 election. The issue at hand was whether it could air the movie 30 days before the Democratic primaries and whether it could use images of Hillary in its advertisements for the documentary 60 days before the election. The court found 5-4 that the Federal Election Commission (FEC) regulations created by McCain-Feingold that prevented it from doing these things were a violation of its First Amendment right to free speech.

As a result of the new ruling, while corporations and unions still cannot give directly to candidates, they can now spend unlimited sums of money in the form of PAC organizations supporting particular candidates — and they can mention the candidates by name.

Prior to this ruling, those wishing to contribute unlimited sums of money to individuals or corporations had to form “527” organizations. Such organizations were outside the umbrella of FEC regulation, but in order to remain outside they couldn’t advocate directly for a particular candidate. (The definition of “advocacy” is opaque, but it has been interpreted to mean one can’t use phrases in ads like “vote for candidate X”.) PACs on the other hand could advocate for candidates, but prior to the Citizens United ruling, they had a cap on how much one could contribute. Corporations could only pay for the administrative costs of PACs associated with them. In removing that limitation, the Supreme Court majority argued that a company should have the same free speech rights as any other “natural person” under the First Amendment.

How will this change political spending? A likely possibility is that corporations and unions will shift money from 527 organizations to PACs, because now PACs have the benefit of both unlimited contributions and direct advocacy. But 527s still have one thing going for them: they can keep their contributors’ names secret. As for PACs, Federal disclosure rules (which were not altered by the Citizens United ruling) prevent anonymous donations, but at the same time, do not force such a great degree of exposure that people just watching an ad are informed of who is funding the PAC.

Some lawmakers would prefer more transparency in that regard. In July 2010, there was a Democratic-led effort to pass something called the DISCLOSE Act, which among other measures, would have required all donors of $600 or more to be listed with the FEC; would have forced those donors to add hyperlinks to their websites by which visitors could access the FEC’s list of donor names; and would have obliged the CEO of any organization running an ad to appear personally in the ad and twice state his or her name and the organization’s name. Republicans uniformly opposed the DISCLOSE Act, and it was thwarted by essentially one vote.

Transparency, however, may still be achieved by other means. Retailing giant Target found that out recently when it donated $150,000 to a PAC called MN Forward, which took out ads to support Minnesota Gubernatorial candidate Tom Emmer. Activists working for The Human Rights Campaign, outraged at Emmer’s opposition to same-sex marriage, looked up the donors’ names and broadcast them to the world, urging consumers to boycott. (MN Forward and its donors maintain that it is Emmer’s economic platform, not his stand on social issues, that earned their support.)

The Target kerfuffle has served to put corporate America on notice: any company that creates a PAC to help a specific candidate is choosing to enter a minefield. The question, therefore, is this: are the benefits to be gained from such support sufficient to risk the backfire? Based on the research record, perhaps not.

As nicely summarized in an article by Jeffrey M. Drope and Wendy L. Hansen ( “Futility and Free Riding: Corporate Political Participation and Taxation Rates in the United States” Business and Politics, 2008, Vol. 10, Issue 3), most studies have actually found a very weak relationship, or none at all, between political contributions and floor votes in Congress. In their own study, Drope and Hansen provide a highly sophisticated econometric analysis of the link between lobbying expenditures and company-specific tax rates, and essentially find no relationship.

Does this suggest that companies should forget about pursuing “non-market strategies” and simply stick to market strategies? Hardly. As David Baron makes clear in Business and Its Environment, there are many ways for a firms to influence their political environments. They can engage in sophisticated lobbying efforts, foster grassroots movements, and give testimony to commissions. They can deploy communications resources, engage in public advocacy, pursue judicial strategies, and work with advisory committees.

Given the availability of all these tactics, any firm would be rash to put too much focus on simple electoral support. The recent Supreme Court ruling may have opened the floodgates for corporate campaign contributions, but it’s unlikely the flood will come.

Vinod K. Aggarwal is Professor of Political Science, Affiliated Professor of Business and Public Policy, and Director of the Berkeley APEC Study Center at the University of California at Berkeley. He is also the editor-in-chief of Business and Politics , a journal focusing on the interaction of firms and political actors.